The current account is an important
component of IMF operational work, both
in terms of program design and in terms
of macroeconomic surveillance for both
industrial and developing countries.
A substantial portion of research conducted
at the IMF on current accounts has focused
on two related questions: how to determine
whether a given level of the current
account deficit is "appropriate" or "excessive"
and whether a particular level of the
current account balance is sustainable
from a longer-term perspective. A related
path of research has examined the relationship
between the current account and external
crises. These questions involve several
challenges in terms of the modeling framework,
the design of empirical analysis, and
the appropriate interpretation of the
results. This article briefly summarizes
recent research at the IMF on these and
related issues.

Two key questions that
arise in IMF country analysis are whether
a given level of the current account
deficit is "appropriate" or "excessive,"
and whether the current account balance
is sustainable.1 Researchers
who try to quantify these concepts face
several difficulties. Establishing whether
a given level of the current account
is excessive requires a model or a framework
that can determine what the "optimal"
or "appropriate" level of the current
account is—clearly not an easy task.
Defining current account sustainability
is also a difficult endeavor: the current
account is the quintessential endogenous
variable, and it is determined not just
by public policy but also by private
agents' saving and investment decisions.
Therefore, automatically extrapolating
the current level of this variable into
the future, in order to assess whether
a country will be able to service its
liabilities and/or secure access to external
financing for future liabilities, is
an exercise fraught with uncertainties.2
Notwithstanding the difficulties highlighted
above, a substantial portion of research
at the IMF on the current account has
indeed focused on these two related questions
of "optimal" levels and sustainability.
Some other papers have instead studied
current account determinants and responses
to shocks in both industrial and developing
countries. A literature review of the
two research approaches is presented
below.

The model that is typically
used to evaluate whether current account
imbalances are excessive or not is a
very stylized model based on the permanent
income theory of consumption, in which
the current account allows countries
to smooth consumption over time when
faced with transitory shocks. The model,
initially applied to industrial countries
to investigate whether capital flows
were excessively volatile, has been used
to evaluate current accounts in developing
countries as well, and has been fairly
successful in explaining current account
fluctuations at business-cycle frequencies.3
Ghosh and Ostry (1997) extend the model
to allow for a precautionary saving motive
driven by income uncertainty (in addition
to the standard consumption smoothing
motive) and show that this extension
contributes to better explaining cyclical
fluctuations in current accounts in G-7
countries.4

Since the consumption-smoothing
model assumes solvency and unfettered
access to international capital markets
at all points in time, it is best suited
for examining the cyclical behavior of
the current account; questions of current
account sustainability are arguably connected
to the trend behavior of the current
account.5 A number of papers
have assessed current account sustainability,
taking into account a number of other
macroeconomic and financial indicators
such as the level of saving and investment,
the level of the real exchange rate,
the burden of external liabilities, the
size of short-term debt relative to reserves,
and, more generally, financial sector
exposure and vulnerability.6
These studies are related to the more
formal literature on "early warning indicators"
that attempt to predict currency crises.7

Another research approach
to current accounts has focused on analyzing
current account determinants and the
response of current accounts to different
types of shocks.8 Debelle
and Faruqee (1996) use a panel approach
to examine the determinants of current
accounts in industrial countries. Chinn
and Prasad (2000) use a larger panel
that includes both industrial and developing
countries to examine the medium-term
determinants of current accounts. They
find that, in developing countries, current
accounts are positively correlated with
government budget balances, measures
of financial deepening and initial stocks
of net foreign assets.9 Calderon,
Chong, and Zanforlin (2001) focus on
the determinants of the current account
in African countries, highlighting the
observation that the degree of persistence
in current account imbalances is smaller,
and the sensitivity of the current account
balance to private savings is larger,
in African countries than in other developing
countries. Cashin and McDermott (1998b)
focus on five commodity-exporting developed
countries and find evidence that terms
of trade shocks induce strong income
and substitution effects. Decressin and
Disyatat (2000) examine the relative
response of the current account and investment
to productivity shocks across European
countries and within regions in Canada
and Italy, and find no systematic difference
between the cross-country and the cross-regional
evidence.10

A line of work related to both literatures
on current account determinants and current
account sustainability has been pursued
by Milesi-Ferretti and Razin (1998, 2000).11
These authors point out that "unsustainable"
current account deficits need to be reversed
eventually, and that recent external
crises have been characterized by very
large swings in the current account.
They focus their empirical analysis on
large and sustained reductions in current
account deficits (reversal episodes)
and examine which factors help predict
the occurrence of a current account reversal
as well as what are the implications
for macroeconomic performance. Their
findings suggest that reversals are more
likely to occur in countries with large
external imbalances, low foreign exchange
reserves, and deteriorating terms of
trade. Interestingly, reversals are not
systematically associated with output
slowdowns or currency crises. Some countries
experience faster growth rates during
the reversal period, while, in others,
growth is slower (particularly, in countries
that start out with an overvalued real
exchange rate).

Also of interest are a few papers
that focus on the theoretical implications
of a credible disinflation program and
of pension reform on the current account.12
Finally, research is under way at the
IMF to model the determinants and dynamics
of net foreign assets—the stock concept
associated with the external current
account. Lane and Milesi-Ferretti (1999)
construct a comprehensive historical
database of net foreign assets for a
large group of industrial and developing
countries. In more recent work, these
authors explore the cross-country determinants
of net foreign asset positions.13

1For a more general survey of the relevance
of the current account for economic policymaking,
see Malcolm Knight and Fabio Scacciavillani,
"Current Accounts: What is Their Relevance
for Economic Policymaking?" IMF Working
Paper, No. 98/71, 1998. 2See the discussion in Gian Maria Milesi-Ferretti
and Assaf Razin, "Current Account Sustainability,"
Princeton Studies in International
Finance, Vol. 81, October 1996. A
number of models used in investment banks
follow this type of approach, albeit
in a more sophisticated fashion.3Pioneering work in this area was done
by Atish Ghosh, on industrial countries
in "International Capital Mobility Amongst
the Major Industrialised Countries: Too
Little or Too Much?" Economic Journal,
Vol. 105, pp. 107­28, 1995; and
on developing countries by Atish R. Ghosh
and Jonathan D. Ostry in "The Current
Account in Developing Countries: A Perspective
from the Consumption-Smoothing Approach,"
World Bank Economic Review, Vol.
9, No. 2, 1995. For an application to
ASEAN countries, see Jonathan Ostry,
"Current Account Imbalances in ASEAN
Countries: Are They a Problem?" IMF Working
Paper 97/51, 1997 (also in Macroeconomic
Issues Facing Asean Countries, ed.
by John Hicklin, David Robinson, and
Anoop Singh, IMF, 1997); to Australia,
see Paul Cashin and C. John McDermott,
"Are Australia's Current Account Deficits
Excessive?" Economic Record, Vol.
79, 1998a; to France, see Pierre-Richard
Agénor and others, "Consumption
Smoothing and the Current Account: Evidence
for France, 1970­96," Journal
of International Money and Finance,
Vol. 18, pp. 1­12, February 1999;
to India, see Tim Callen and Paul Cashin,
"Assessing External Sustainability in
India," IMF Working Paper 99/181, 1999
(and forthcoming in Journal of International
Trade and Economic Development);
to Nigeria, see Olumuyiwa Adedeji, "The
Excessiveness and Sustainability of the
Nigerian Current Account," forthcoming
IMF Working Paper, 2001. 4Atish R. Ghosh and Jonathan D. Ostry,
"Macroeconomic Uncertainty, Precautionary
Saving, and the Current Account," Journal
of Monetary Economics, Vol. 40, pp.
121­39, 1997.5Paul Cashin and C. John McDermott, "International
Capital Flows and National Creditworthiness:
Do the Fundamental Things Apply as Time
Goes By?" IMF Working Paper 98/172, 1998b
(and forthcoming in Australian Economic
Papers), provide a breakdown between
trend and consumption-smoothing components
of the current account in Australia.6See, for example, Gian Maria Milesi-Ferretti
and Assaf Razin, "Current Account Sustainability,"
Princeton Studies in International
Finance, Vol. 81, October 1996; Gian
Maria Milesi-Ferretti and Assaf Razin,
"Current Account Deficits and Capital
Flows in East Asia and Latin America:
Are the Early Nineties Different from
the Early Eighties?" in Changes in
Exchange Rates in Rapidly Developing
Countries: Theory, Practice, and Policy
Issues, ed. by Takatoshi Ito and
Anne O. Krueger, 1999 (Chicago: University
of Chicago Press for NBER); and Donal
McGettigan, "Current Account and External
Sustainability in the Baltics, Russia,
and Other Countries of the Former Soviet
Union," IMF Occasional Paper No. 189,
2000. Some of the studies cited earlier
(Callen and Cashin, 1999; Ostry, 1997)
also use indicators in addition to the
consumption-smoothing model to evaluate
current account imbalances.7Indeed, the current account plays an
important role as a warning signal for
currency crises in some of these models.
See, for example, Andrew Berg and Catherine
Pattillo, "Are Currency Crises Predictable?
A Test,"IMF Staff Papers, Vol.
46, No. 2, 1999; and Gian Maria Milesi-Ferretti
and Assaf Razin, "Current Account Reversals
and Currency Crises: Empirical Regularities,"
in Currency Crises, ed. by Paul
Krugman (Chicago: University of Chicago
Press for NBER, 2000).8For related work examining the dynamics
of the trade balance in response to different
types of shocks, see Eswar Prasad and
Jeffrey Gable, "International Evidence
on the Determinants of Trade Dynamics,"IMF Staff Papers, Vol. 45, No.
3, 1998; and Eswar Prasad, "International
Trade and the Business Cycle," The
Economic Journal, October 1999.9Guy Debelle and Hamid Faruqee, "What
Determines the Current Account? A Cross-Sectional
and Panel Approach," IMF Working Paper
96/58, 1996; Menzie Chinn and Eswar Prasad,
"Medium-Term Determinants of Current
Accounts in Industrial and Developing
Countries: An Empirical Exploration,"
IMF Working Paper 00/46, 2000. For related
work on estimating equilibrium measures
of current accounts and exchange rates,
see Peter Isard and Hamid Faruqee, eds.
"Exchange Rate Assessment: Extensions
of the Macroeconomic Balance Approach,"
IMF Occasional Paper No. 167, 1998.10César Calderón, Alberto
Chong, and Luisa Zanforlin, "Are African
Current Account Deficits Different? Stylized
Facts, Transitory Shocks, and Decomposition
Analysis," IMF Working Paper 01/4, 2001;
Paul Cashin and C. John Dermott, "Terms
of Trade Shocks and the Current Account,"
IMF Working Paper 98/177, 1998; and Jörg
Decressin and Piti Disyatat, "Capital
Markets and External Current Accounts:
What to Expect from the Euro," IMF Working
Paper 00/154, 2000.11Gian Maria Milesi-Ferretti and Assaf
Razin, "Sharp Reductions in Current Account
Deficits: An Empirical Analysis," European
Economic Review Papers and Proceedings,
1998; and Gian Maria Milesi-Ferretti
and Assaf Razin, "Current Account Reversals
and Currency Crises: Empirical Regularities,"
in Currency Crises, ed. by Paul
Krugman (Chicago: University of Chicago
Press for NBER, 2000).12On the former topic, see Jorge E. Roldós,
"On Gradual Disinflation, the Real Exchange
Rate, and the Current Account," Journal
of International Money and Finance,
Vol. 16, February 1997, pp. 37­54;
on the latter, see Axel Schimmelpfennig,
"Pension Reform, Private Saving, and
the Current Account in a Small Open Economy,"
IMF Working Paper 00/171, 2000.13See Philip R. Lane and Gian Maria Milesi-Ferretti,
"The External Wealth of Nations: Measures
of Foreign Assets and Liabilities for
Industrial and Developing Countries,"
IMF Working Paper 99/115, 1999 (and forthcoming
in Journal of International Economics);
Philip R. Lane and Gian Maria Milesi-Ferretti,
"Long-Term Capital Movements," paper
presented at the NBER sixteenth Annual
Conference on Macroeconomics, Cambridge,
Massachusetts, April 2001.

Research
SummaryFiscal
DecentralizationHamid
R. Davoodi

During
the last two decades, numerous economic
and political developments—the worldwide
trend toward democracy, the emergence
of new economic federations and of decentralized
fiscal structures in transition economies
(Russia, in particular), a general dissatisfaction
with central governments' fiscal performances,
and the creation of common currency unions—have
reinvigorated an old debate about the
efficacy of fiscal decentralization.
Proponents on one side of the debate
use a traditional, normative model to
evaluate the observed patterns of fiscal
decentralization. The other side emphasizes
a positive approach asking whether attempts
at fiscal decentralization have, in practice,
produced the intended benefits, such
as enhanced public service delivery,
higher growth, lower poverty, better
macroeconomic management, and better
governance. While opinions seem to have
converged regarding the normative analysis,
underscoring the importance of getting
the fundamentals right, the evidence
appears to have diverged with regard
to the empirical analysis. This summary
reviews the debate and surveys research
that has been done at the IMF since 1997.

Fiscal
decentralization has been a topic in
the public finance literature for almost
40 years.1 It is often defined
as the devolution of fiscal responsibilities
from the central government to subnational
levels of government (e.g., states, regions,
provinces, districts, municipalities)
but this definition, in itself, is not
complete. In fact, the basic issue in
fiscal decentralization and fiscal federalism
is that of assigning specific fiscal
responsibilities to the proper level
of government.2 These responsibilities,
which range from the design to the implementation
of various aspects of intergovernmental
fiscal relations, raise a number of questions:

What types of spending should be conducted
by what levels of government (i.e., expenditure
assignment)?;

What types of revenues should be raised
and what tax rates should be set by what
levels of government (i.e., revenue assignment)?;

How should intergovernmental grants and
revenue sharing be used to fill the gap
between expenditures and revenues at
subnational levels and to provide the
right incentives to subnational governments?;

Which level should be able to finance
its spending by borrowing from domestic
or external sources, private or public?;

Which level is responsible for tax administration
and the public expenditure management
system?;

Which level should design and administer
regulations?; and

How should regulations be harmonized
across various levels of government?

The
traditional, normative analysis for assigning
these responsibilities to various levels
of government rests on how these responsibilities
influence the balance between the three
basic functions or objectives of fiscal
policy: efficiency in allocation of resources,
income redistribution, and macroeconomic
management.

Generally,
allocative efficiency calls for assigning
to lower levels of government those responsibilities
where the costs and benefits are confined
to a local jurisdiction and reflect the
preferences of the local community (e.g.,
local police and garbage collection services).
Income redistribution policies (e.g.,
pensions, social assistance) and macroeconomic
policies (e.g., financing of government
expenditures, monetary policy) are generally
assigned to the central government or
to a unique, central authority because
certain tax bases (e.g., corporate income
tax) are mobile and have economywide,
automatic, stabilizing effects; some
expenditures have large aggregate demand
effects (e.g., federal transfers to states,
interstate transportation networks, unemployment
benefits); and price-stabilizing measures
supercede the jurisdictions of subnational
governments and are best left to a central
monetary authority.

Recent
research on fiscal decentralization at
the IMF—based on country-
specific studies, cross-country analyses,
and policy discussions with member countries—has
heightened awareness of the risks of
decentralization and demonstrated the
importance of "getting the fundamentals
right":3

In summarizing the experiences of over
20 countries, Ter-Minassian (1997) concludes
that, while efficiency-enhancing benefits
of decentralization are well understood
in theory, substantial decentralization
makes it more difficult to carry out
the redistributive and macroeconomic
management objectives of fiscal policy.
Cross-country empirical analysis has
shown that decentralization is associated
with lower growth, higher deficits, and
larger governments. The evidence regarding
the latter finding is mixed, however,
when considering research conducted outside
the IMF.4

Expected efficiency-enhancing benefits
of decentralization may not materialize
because of factors such as: a limited
administrative capacity at the subnational
level to manage a transparent public
expenditure system and a modern treasury
operation; a limited ability to report
and prepare subnational budgets; the
presence of low factor mobility and limited,
or even nonexistent, intergovernmental
competition; and, perhaps, a higher incidence
of corruption at the local level than
at the central level.5 Empirical
evidence on the relationship between
corruption or poor governance and decentralization
seems to be mixed at best and may depend
on how subnational expenditures are financed.6
However, some studies have found, unambiguously,
that countries with decentralized fiscal
structures tend to be more democratic.7

In countries with significant macroeconomic
imbalances, a hard budget constraint
should be imposed on subnational governments,
including a rule of zero borrowing by
subnational governments. In countries
with no serious macroeconomic imbalances,
borrowing may be allowed, but it should
be subject to market discipline, and
there should be clearly specified rules
that link the subnational governments'
abilities to service their debts to their
assigned responsibilities.8
(In this respect, for instance, Brazil's
Fiscal Responsibility Act seems to have
been instrumental in restoring fiscal
discipline at the subnational level.9)

The success or failure of decentralization
programs depends on the sequencing and
the speed of reform measures, as well
as the clear division of expenditure
and revenue assignments.10
In particular, decentralization of revenues
and transfers should not precede the
devolution of expenditure responsibilities,
and a "big-bang" approach to decentralization
is unlikely to be successful.11

Increasingly,
attention has been paid to implications
of the so-called, common-pool problem
for fiscal decentralization. Common-pool
problems arise when the same tax base
is shared among different levels of government
who can set their own tax rates, or when
decentralized spending is financed by
unconditional grants.12 On
the spending side, the common-pool problem
can lead to an overspending bias at the
subnational level if the benefits of
public spending are concentrated in a
few local jurisdictions and their costs
are diffused across many jurisdictions
through general taxation. In an empirical
study of U.S. city governments, Baqir
(forthcoming) finds support for this
type of common-pool problem; a ceteris
paribus increase in the size of the city
legislature by one person—serving as
a proxy for greater districting and the
bestowal of benefits on a particular
constituency—increases that city's per
capita expenditures by 3 percent.13
On the tax side, the common-pool problem
can lead to interstate tax competition
(the horizontal tax externality) and
federal-state tax competition (the vertical
tax externality), which would affect
tax rates at both the federal and state
levels. Keen and Kotsogiannis (forthcoming)
show that a federation can result in
an excessively high state tax rate if
the vertical tax externality dominates
the horizontal tax externality.14

Finally,
the debate on fiscal decentralization
also hinges on the role of the state
in the economy, an issue which is at
the heart of many transition economies.
Attempts at decentralization should come
only after the rationale for state intervention
in a particular activity is firmly established.
In the absence of a firm rationale for
state intervention, privatization of
any public sector activities, regardless
of whether they are carried out by the
central or subnational governments, should
always be the preferred alternative to
fiscal decentralization.

1Richard
A. Musgrave, The Theory of Public
Finance (New York: McGraw-Hill, 1959).2Wallace E. Oates, "An Essay
on Fiscal Federalism," Journal of
Economic Literature, September 1999,
pp. 1120-49. See also Musgrave (1959).3Teresa Ter-Minassian, ed.,
Fiscal Federalism in Theory and Practice
(Washington: International Monetary
Fund, 1997); Ehtisham Ahmad, ed., Financing
Decentralized Expenditures: An International
Comparison of Grants (Cheltenham,
U.K.: Edward Elgar, 1997); and a series
of studies, cited below, which were presented
in a conference organized by the IMF
in November 2000.
For a recent application of fiscal federalism
issues to the Caribbean countries, see
Carri Zeljko Bogetic and Janet Stotsky,
Fiscal Federalism and Its Relevance
in the Caribbean (Kingston, Jamaica:
University of the West Indies, forthcoming).4Hamid R. Davoodi and Heng-fu Zou, "Fiscal Decentralization and Economic
Growth: A Cross-Country Analysis," Journal
of Urban Economics, March 1998, pp.
244­57; Danyang Xie, Heng-fu Zou,
and Hamid R. Davoodi, "Fiscal Decentralization
and Economic Growth in the United States,"
Journal of Urban Economics, March
1999, pp. 228­39; Luiz de Mello,
"Fiscal Decentralization and Intergovernmental
Fiscal Relations: A Cross-Country Analysis,"
World Development, February 2000,
pp. 365­80; Luis de Mello, "Fiscal
Federalism and Government Size in Transition
Economies: The Case of Moldova," IMF
Working Paper 99/176, 1999 (also forthcoming
in Journal of International Development);
John Anderson and Hendrik Van den Berg,
"Fiscal Decentralization and Government
Size: An International Test for the Leviathan
Accounting for Unmeasured Economic Activity,"
International Tax and Public Finance,
May 1998, pp. 171­86.5Ter-Minassian (1997); Vito
Tanzi, "On Fiscal Federalism: Issues
to Worry About," 2000.
6Luiz de Mello, "Can Fiscal
Decentralization Strengthen Social Capital?"
IMF Working Paper 00/129, 2000; Luiz
de Mello and Matias Barenstein, "Fiscal
Decentralization and Governance: A Cross-Country
Analysis," forthcoming IMF Working Paper;
Daniel Treisman, "Decentralization and
the Quality of Government," 2000.7Ugo Panizza, "On the Determinants
of Fiscal Centralization: Theory and
Evidence," Journal of Public Economics,
October 1999, pp. 97­139.8Ter-Minassian (1997).9Jose Alfonso and Luiz de
Mello, "Brazil: An Evolving Federation"
.10Jorge Martinez-Vazquez,
Era Dabla-Norris, and John Norregaard,
"Making Decentralization Work: The Case
of Russia, Ukraine, and Kazakhstan";
and Ehtisham Ahmad, Li Keping, and Thomas
Richardson, "Recentralization in China?"
.11Ehtisham Ahmad and Ali
Mansoor, "Indonesia: Managing Decentralization,"
2000.12See also Luis de Mello,
"Intergovernmental Fiscal Relations:
Coordination Failures and Fiscal Outcomes,"
Public Budgeting and Finance,
Spring 1999, pp. 3­25.13Reza Baqir, "Districting
and Government Overspending," forthcoming
IMF Working Paper.14Michael Keen and Christos
Kotsogiannis, "Does Federalism Lead to
Excessively High Tax Rates?" forthcoming
in American Economic Review. See
also Michael Keen, "Vertical Tax Externalities
in the Theory of Fiscal Federalism,"IMF Staff Papers, Vol. 45, No.
3, 1998, pp. 454–85.

Country
StudyINDIATim Callen

India
has had an impressive economic performance
over the past decade. Its growth rate
has been among the highest in the world,
inflation has been relatively well contained,
and the balance of payments has been
maintained at comfortable levels. This
performance has been achieved despite
the Asian financial crisis, the international
sanctions that were imposed following
the nuclear tests in 1998, and a series
of adverse weather-related shocks and
natural disasters. While poverty has
declined over time, it remains at a high
level, with more than one-quarter of
the population living below the poverty
line. Moreover, macroeconomic imbalances,
particularly on the fiscal side, and
slow progress in key structural policy
areas appear to be dampening growth prospects.
Against this background, recent IMF research
on India—much of which is collected
in the new book, India at the Crossroads:
Sustaining Growth and Reducing Poverty—has
focused on what policies are needed to
sustain the rapid growth that is essential
to reducing poverty.1This
article provides an overview of this
research.

India achieved considerable fiscal consolidation
during the first half of the 1990s, but
subsequent policy slippages, at both
the central and state government levels,
resulted in the consolidated public sector
deficit ballooning to over 11 percent
of GDP and public debt rising to 80 percent
of GDP by the end of the decade. These
developments have naturally raised questions
about whether the country's recent strong
economic performance can be sustained
without fiscal policy adjustment. IMF
staff research has focused both on the
reasons for the deterioration in the
fiscal position and on the sustainability
of current fiscal policies.

Muhleisen
(1998) assessed the revenue impact of
tax reforms implemented by the central
government during the 1990s.2
He found that, while elasticity estimates
point to a small improvement in the revenue-generating
capacity of the tax system, overall tax
revenue declined relative to GDP due
to the substantial cuts in tax rates.
Muhleisen concluded that the disappointing
revenue performance reflected the partial
nature of the reforms. Regarding the
sustainability of fiscal policies, Reynolds
(2001) used a simple growth model to
show that, despite the high deficits
incurred in recent years, India has been
able to avoid a fiscal crisis largely
because of the favorable differential
between real interest rates and overall
economic growth rates.3 However,
Reynolds's simulations suggested that
a continuation of recent fiscal policies
would risk putting India on an explosive
debt path.

An
alternative approach to assessing Indian
fiscal policy was followed by Cashin,
Olekalns, and Sahay (1998) who used an
intertemporal model to demonstrate that
policy has been consistent with tax-smoothing
behavior.4 They also found,
however, a significant bias toward deficit
financing—which has led to excessive
government borrowing, as well as the
resorting to seniorage and financial
repression—and government debt was estimated
to be in excess of levels considered
optimal or consistent with intertemporal
solvency. Muhleisen (1997) looked at
determinants of saving in India and found
that improving public saving was one
of the keys to raising national saving.5

With
regard to India's external sector, Cerra
and Saxena (2000) examined the causes
of the 1991 balance of payments crisis.6
Since this crisis, India has maintained
a sustainable external position, and
a number of papers have looked at the
factors behind this success. Towe (2001)
assessed the factors that helped insulate
India from the turmoil of the Asian financial
crisis, attributing the success to effective
exchange rate management, generally sound
macroeconomic fundamentals, and the presence
of capital controls.7 Tzanninis
(1998) looked at exports and competitiveness
in light of the currency realignments
in the Asian region during the financial
crisis.8 Using several statistical
and econometric techniques, he found
no evidence to indicate that the rupee
was overvalued relative to its fundamentals.
Callen and Cashin (1999) used a number
of methodologies to analyze external
sector developments in India since independence.9
They found that, while models of external
sustainability raised questions about
India's external position prior to the
1991 balance of payments crisis, these
models have not highlighted significant
risks since then.

In
the area of monetary policy, the Reserve
Bank of India (RBI) shifted away from
a broad-money target to a multiple-indicators
approach to policymaking in the late
1990s. Callen and Chang (1999) assessed
the forecasting ability of single-equation
models of the inflation process and a
series of vector autoregressions to identify
which of the many available indicators
provide the central bank with the most
reliable and timely guides of future
inflation developments.10
They found that developments in monetary
aggregates continued to provide the most
useful information, but that the long
lags between money and inflation suggested
the need for a broader set of indicators
for policymaking.

The
financial sector has also been a key
focus of the reform agenda in recent
years. Callen (1998) compared the financial
performance of the public sector banks
during the 1990s with those of the domestic
and foreign private sector banks.11
He found that, both in terms of interest
spreads and cost structure, the public
sector banks fared worse than their private
sector counterparts, but he also noted
that there was a significant divergence
between the performance of "strong" and
"weak" public sector banks. Two other
papers—Mohanty (1998) and Ilyina (2001)—explored
issues relating to the mutual fund and
nonbank financial company (NBFC) sectors,
respectively.12 Both sectors
have faced recent difficulties that highlighted
weaknesses in their regulatory environments;
the papers assessed the reforms that
have been undertaken by the authorities
to strengthen these sectors and made
recommendations for further action. These
recommendations include further strengthening
of financial sector regulation and supervision,
reductions in problem loans, steps to
increase competition among institutions,
and measures to reduce the role of the
government in the financial sector.

The
impact of economic reforms on interstate
growth, income disparities, and poverty
have been taken up in a number of studies.
Cashin and Sahay (1996) looked at the
role of internal migration and grants
from the central government to the states
in influencing the growth performance
of the states.13 Aiyar (2001)
found that the per capita income gap
between states has widened in recent
years and that differences in literacy
and private investment rates across states
were part of the reason for the lack
of convergence.14 Lastly,
Aziz (2001) looked at trends in interstate
differences in rural poverty and found
that, while economic growth has been
strongly positive for the poor and a
force of convergence in the post-1991
reform period, nongrowth factors have
widened interstate poverty differentials.15

About 25 percent of world merchandise trade
consists of primary commodities. Both
long-term trends and short-term fluctuations
in commodity prices are, therefore, key
determinants of developments in the world
economy. Indeed, many developing countries
continue to rely on a few commodities
for the bulk of their export earnings
and fiscal revenue. Commodity price fluctuations
(particularly in fuel and energy) can
also transmit business cycle disturbances
across countries and can affect national
rates of inflation.

The
IMF's Research Department maintains a
database of spot prices for about 80
primary commodities, with annual, quarterly,
and monthly prices. The commodities covered
include items in the general categories
of food, beverages, agricultural raw
materials, metals, fertilizers, and energy.
This database, IMF Primary Commodity
Prices, is updated monthly and is
available in table format (for the period
from 1990 on) at http://www.imf.org/external/np/res/commod/index.asp and through the monthly publication,
International Financial Statistics.

In
addition, price baselines for nonfuel
primary commodities—some 35 series
are included in the IMF's aggregate index—are
prepared by the Research Department in
collaboration with the World Bank. These
detailed baselines, generated for internal
use, provide a common basis for the short-
and medium-term projection of export
earnings and import expenditures in the
balance of payments work of the IMF and
the World Bank. Aggregate price indices
derived from the baselines for individual
nonfuel commodities are published in
the IMF's World Economic Outlook
and in the World Bank's World Development
Report.

IMF
research on commodity prices has focused
on understanding the stylized facts of
commodity-price movements. The cyclical
properties of commodity-price cycles
have been examined, with the broad finding
that price slumps last longer than price
booms, but that prices typically rise
faster in short-lived booms than in long-lived
slumps.1 Moreover, while there
are small, long-run, downward trends
in real commodity prices, this trend
movement is of little practical policy
relevance as it is small when compared
with the large variability of commodity
prices.2 Shocks to commodity
prices are also typically long lasting,
which is important information for policymakers
seeking to design institutional arrangements
to ameliorate the economic effects of
such shocks.3In addition,
there is little evidence to support the
hypothesis that the prices of unrelated
commodities move together on world commodity
markets.4 The macroeconomic
determinants of the behavior of nonoil
commodity prices have also been examined,
as have the important effects of climate
variability on world commodity prices
and economic activity.5 Finally,
given the importance of oil to the world
economy, IMF research has also focused
on the economic effects of oil price
shocks, and on factors influencing the
volatility of world oil prices.6

The
IMF Institute hosted a high-level seminar
on Exchange Rate Regimes during March
19­20, 2001, to discuss optimal
exchange rate systems for emerging market
economies. The main conclusion was that
optimal regimes vary across countries
and through time as country circumstances
change. Polar regimes—hard pegs and
pure floats—can be equally viable alternatives
if other policies and factors consistently
support the exchange rate system, and,
under specific circumstances, the middle
ground may be a feasible option. The
seminar agenda and a brief summary of
the proceedings follow.

Hard Peg or Free Floating? The
Case of EstoniaPeter Lohmus (Bank
of Estonia)

The
seminar on exchange rate regimes opened
with an address by Horst Köhler,
who stressed the importance of understanding
better how the different regimes work—and
what conditions are needed for them to
work—in today's highly integrated world.
In briefly reviewing the recent experiences
of several industrial and emerging market
economies, he emphasized how different
are the circumstances that each country
group faces, and concluded that no single
system can work for all countries at
all times.

In
the first session, participants at the
round table discussed the critical role
played by factors such as pass-through
coefficients (Robert Flood, Carmen
Reinhart); trade policy and the degree
of financial integration (Jeffrey
Frankel); a country's capacity to
issue foreign debt in its own currency
(Carmen Reinhart); and its capacity
to credibly commit to sound fiscal and
monetary policies (Stanley Fischer).
These factors explain why some countries,
in recent years, have adopted either
of the polar systems—hard peg or free
float—while others have successfully
maintained an intermediate regime. The
factors that determine which system works
better for a particular country became
clear as different country experiences
were analyzed and discussed during the
seminar.

Chile
and Poland were the only countries discussed
at the seminar that have adopted free
floats. Mexico declared a similar policy,
but Alejandro Werner of the Bank
of Mexico observed that, at times, the
central bank has intervened in the market
to smooth out exchange rate fluctuations.
However, because these interventions
are not targeted at the medium-term exchange
rate, some would still characterize the
regime as "floating."

Felipe
Morandé of Chile and Alejandro
Werner both acknowledged that their
countries' choices to float their exchange
rates were, to a great extent, dictated
by the failure of prior monetary systems
to deliver stability and sustained growth.
In both countries, the last experiences
with pegs ended in recession and financial
crisis—Chile in 1982-83 and Mexico in
1995.

After
1983, the regime in Chile evolved into
a crawling band that targeted the real
exchange rate and resulted in a period
of high and sustained growth that lasted
until the Asian crisis in 1997. During
this period, the country successfully
introduced inflation targeting, but the
increased financial integration and large
capital inflows of the 1990s made it
difficult to target both the real exchange
rate and inflation. Thus, the adoption
of a free float in 1999 reflected the
recognition that it was impossible to
pursue both independent monetary and
exchange rate policies. Mexico adopted
a free float in December 1997.

In Chile, and to a lesser extent
in Mexico, four factors influenced the
authorities' hands-off policy after adopting
a free float: pass-through coefficients
fell rapidly in subsequent years, inflation
stayed at relatively low levels, volatility
in financial markets did not increase,
and the corporate sector showed greater
caution in managing its foreign indebtedness.

In
Poland, the nominal exchange rate was
managed in the early 1990s, to both maintain
a competitive edge in the markets and
to reduce inflationary pressures. According
to Ryszard Kokoszczynski, however,
the conflict between these two objectives
became evident early on, and the authorities
decided in favor of the first objective.
The change in the international environment
in the mid-1990s led to large capital
inflows, a strong current account, and
reserves accumulation, thus making the
need to maintain a competitive real exchange
rate less urgent. These developments
allowed the authorities to adopt price
stability as the primary objective, adopting
in 1995 a crawling, but widening, exchange
rate band. After introducing inflation
targeting in 1998, the Polish economy,
in reality, functioned with two nominal
anchors. The adoption of a full float
in early 2000 was recognition that a
dual nominal system is unsustainable
in the medium-term.

Since
1991, Israel has been operating a crawling
band under an inflation targeting policy,
but inconsistencies between the two objectives
have forced the authorities to keep widening
the band—as of late 2000, the band width
surpassed 35 percent and has kept increasing
since then. Gil Bufman and Leonardo
Leiderman noted that four factors
contributed to the decision to move toward
greater exchange rate flexibility. First,
the surge in capital inflows during the
1990s made the continuation of the dual
nominal system increasingly costly. Second,
the increased flexibility did not lead
to more market volatility. Third, inflation
and the pass-through coefficient both
continued falling after exchange rate
flexibility increased. And fourth, market
participants have shown greater prudence
in handling their external borrowing.

Korea,
Indonesia, the Philippines, and Thailand
all moved toward greater exchange rate
flexibility in the postcrisis period,
but Peter Montiel and Leonardo
Hernández argued that none
of these countries can be labeled "true"
floaters for two reasons: their significant
accumulation of reserves since the crisis
and a lesser reliance on exchange rate
movements in response to shocks than
real floaters like Japan and Germany.
The movement toward greater but limited
flexibility in these countries can be
justified on at least two grounds. First,
they may be trying to target an undervalued
currency to help the recovery. Second,
they may be attempting to accumulate
a reserve buffer as insurance against
future liquidity shocks in international
capital markets. Furthermore, these countries'
postcrisis policies could be characterized
as second-best policies that are
called for in view of market distortions
that cause moral hazard and similar problems.
The benign market response to these countries'
policies in the postcrisis period suggests
that, under some conditions, there is
still limited room to maneuver in the
middle ground.

Argentina,
Estonia, Hong Kong, and Malaysia adopted
hard pegs, although for different reasons.
Malaysia was the only one among the Asian
crisis countries not to move toward greater
flexibility after the 1997-98 turmoil.
Peter Montiel argued that this
policy was probably motivated by the
authorities' decision not to resort to
an IMF-sponsored adjustment program,
which made the credibility issue vis-à-vis
financial markets a pressing one. He
noted that the authorities signaled a
very strong commitment to price stability
by pegging their currency, and resorted
to capital controls in order to have
some "breathing space" to implement monetary
policy. Again, the benign market response
postcrisis suggests that the policy mix
has been adequate given the specific
circumstances.

Argentina,
Hong Kong, and Estonia operate currency
boards, which indicates a much greater
commitment to the peg. Argentina adopted
its currency board in 1991 in an effort
to escape hyperinflation after a long
history of failed stabilization programs.
The currency board succeeded in stabilizing
prices and bringing about a period of
prosperity when foreign capital flooded
in, but the board also acted as a straightjacket
when external conditions changed. Nevertheless,
Guillermo Escudé argued
that the currency board remains the cornerstone
of Argentina's nominal exchange rate
stability, and abandoning it could have
serious consequences because of large
currency mismatches and high dollarization
in the economy.

Hong
Kong adopted a currency board as a response,
not to hyperinflation, but to a confidence
crisis and high market volatility in
the early 1980s. Also, the underlying
economic conditions there are significantly
different from those in Argentina, which
is probably why Hong Kong had a quick
turnaround after the Asian crisis. Furthermore,
the high foreign exchange coverage of
the monetary base implies that the Hong
Kong Monetary Authority can effectively
act as a lender of last resort, thus
reducing the risk of a systemic liquidity
crisis. Having a lender of last resort
does not detract from having strong and
sound financial institutions. Priscilla
Chiu documented that Hong Kong banks
maintain capital and liquidity ratios
of 18 and 40 percent, respectively, well
above the recommended standards of 8
and 25 percent.

In
the final country presentation, Peter
Lohmus argued that, although inflation
in Estonia in the early 1990s was still
high, the decision to adopt a currency
board was mainly political. After independence,
the country needed to quickly implement
reforms, but many of the institutions
needed to effectively operate a more
discretionary policy were missing. The
currency board, along with sound macroeconomic
policies, has sheltered Estonia from
external shocks.

A workshop held at the IMF on
April 12­13, 2000, considered the
effects of macroeconomic policies, economic
crises, and IMF-supported programs on
income distribution and poverty in various
countries. Several studies of work in
progress were presented by IMF economists
and then opened for discussion by experts
from academia, the World Bank, and other
research institutions. These studies
will be revised, taking into account
the points made in the discussions, and
many will be issued later this year as
working papers or policy discussion papers
and posted on the IMF's website. A list
of the workshop papers along with brief
summaries of their preliminary findings
follow. Economic Growth and Poverty Reduction
in Sub-Saharan AfricaToshihiro Ichida (Columbia University)
and Gary Moser (IMF)
Discussant: Ibrahim A. Elbadawi (World
Bank)

How Volatile and Predictable Are Aid
Flows, and What Are the Policy Implications?Ales Bulír and Javier Hamann
(IMF)
Discussant: T. N. Srinivasan (Yale University)

Changes in the Structure of Earnings
During a Period of Rapid Technological
Change: Evidence from the Polish TransitionMichael Keane (New York University
and Yale University) and Eswar Prasad
(IMF)
Discussant: Susan Collins (IMF)

The papers presented at the workshop
covered a wide range of topics concerning
the relationships between macroeconomic
developments and policies on the one
hand and income distribution and poverty
on the other. The papers can be classified
into the following five broad categories.

Studies that use longitudinal microeconomic
data (household income and expenditure
surveys) for one country to measure the
impact of macroeconomic or structural
adjustment and economic crises on households'
living standards:

Eble and Koeva analyze the consumption
of Russian households before and after
the 1998 economic crisis. They estimate
that real household consumption fell
by about one-third following the crisis
and households without access to land
suffered the greatest losses because
they were unable to substitute self-produced
foods for previously purchased foods.

Keane and Prasad use data on
individual workers' earnings in Poland
in the years 1985­96 to analyze
changes in cross-sectional labor earnings
inequality during the economic transition.
They find that while education premia
rose sharply, experience premia fell
markedly, especially in the early years
of the transition.

Baldacci, de Mello, and Inchauste
use Mexican household survey data to
estimate the increase in the number of
individuals living in poverty as a result
of the financial crisis of the mid-1990s.
Controlling for a host of factors, they
find that the adverse impact of the crisis
was greater on urban households than
on rural households. These results are
complemented by a broader analysis of
the relationship between currency crashes
and poverty for a panel of countries.

Studies
that use panels of countries or regions
within countries to examine the impact
of macroeconomic developments on poverty:

Ichida and Moser use non-income measures
of poverty (infant mortality, life expectancy,
and school enrollment) for 46 countries
in Sub-Saharan Africa over the last three
decades. They confirm the existing consensus
that economic growth is robustly related
to poverty reduction.

Aziz draws on data of poverty levels
for separate states of India over the
last two decades. He looks at whether
economic growth has been beneficial for
the poor and whether it has narrowed
interstate differences in rural poverty
levels.

Studies
that apply calibration, computable
general equilibrium, or theoretical models
to macroeconomic and poverty issues in
developing countries:

Townsend and Ueda develop a model
of financial deepening, economic development,
and inequality. They calibrate the model
using parameters estimated from Thai
data.

Dabla-Norris, Matovu, and Wade use
a model calibrated to household data
for Zambia to simulate the effects of
various alternative uses of HIPC-related
debt relief. They estimate that the greatest
impact in reducing poverty and boosting
economic growth occurs if debt relief
savings are used to raise fiscal expenditure
on primary education.

Jung and Thorbecke apply a computable
general equilibrium model to Tanzania
and Zambia. They estimate that the expected
boost to education and health spending,
arising from HIPC-related debt relief,
will substantially increase output growth
and the relative wages of low-skilled
workers.

Masson develops a theoretical model
that combines features of the Harris-Todaro
model of rural-urban migration with features
of models of human capital acquisition
under imperfect capital markets and heterogeneous
abilities. He explores the consequences
on wealth inequality levels of migrations
that are driven by the desire of workers
to acquire skills.

Studies
that focus on the macroeconomic implications
of external aid and debt relief related
to the Highly-Indebted Poor Countries
(HIPC) initiative, and on how these
aid programs affect poverty reduction
and optimal macroeconomic policy:

Bulír and Hamann use data
for a panel of countries to show that
international aid flows are more volatile
than domestic fiscal revenues, and that
they are mildly procyclical.

Burnside and Fanizza develop a macroeconomic
model that considers the consequences
of HIPC debt relief and the implications
for desirable fiscal and monetary policies.
They examine whether particular attention
should be paid to possible increases
in inflation resulting from debt relief.

Studies
that analyze a specific country or
broader region to yield insights
into the relationship between epidemics
or gender issues and economic growth:

Haacker documents the macroeconomic
impact of the HIV/AIDS epidemic on countries
in southern Africa and traces its consequences
using a neoclassical growth model.

Brixiová, Bulír,
and Comenetz report on the widening
gender gap in education at the national
level in Eritrea during the last decade,
and at the continuing large disparities
at the regional level as well. They point
out how this is likely to have negative
long-term consequences on both economic
growth and poverty reduction.

IMF
Staff PapersVolume 48, Issue 1

Threshold Effects in the Relationship
Between Inflation and Growth
Mohsin S. Khan and Abdelhak S. Senhadji

A Peek Inside the Black Box: The
Monetary Transmission Mechanism in Japan
James Morsink and Tamin Bayoumi

Dynamic Gains from Trade: Evidence
from South Africa
Gunnar Jonsson and Arvind Subramanian

IMF Staff Papers, the IMF's scholarly
journal, edited by Robert Flood, publishes
selected high-quality research produced
by IMF staff and invited guests on a
variety of topics of interest to a broad
audience, including academics and policymakers
in IMF member countries. The papers selected
for publication in the journal are subject
to a rigorous review process using both
internal and external referees. The journal
and its contents (including an archive
of articles from past issues) are available
online at http://www.imf.org/external/pubs/ft/staffp/index.htm.

Six
non-CFA-zone members of the Economic
Community of West African States (ECOWAS)
have launched an ambitious initiative
to set up a second monetary union and
common currency area in West Africa by
January 2003, as a first step toward
wider monetary union among all the ECOWAS
(CFA and non-CFA) countries by 2004.
Following a survey of the lessons learned
from other monetary unions, the paper
evaluates whether such a monetary union
makes economic sense. Pointing out that
monetary union is neither necessary nor
sufficient to achieve other aspects of
regional integration, the authors urge
the ECOWAS countries to invest their
energies in the structural policies,
instead of trying to meet very short
deadlines for monetary union. A looser
form of monetary cooperation would help
to increase exchange rate stability,
would be less costly, could be achieved
sooner, and would allow some flexibility
in response to the asymmetric shocks
to which these economies are susceptible.
The paper concludes that full ECOWAS
monetary union should await more extensive
economic convergence and reinforced political
solidarity within the region.

The
revenues from exploiting large exhaustible
resources such as oil can pose significant
challenges for a country. Nonrenewable
Resource Funds (NRFs)—which can take
various forms including stabilization
and savings funds—are seen as a response
to these challenges. This paper examines
whether NRFs can help countries pursue
good fiscal and other macroeconomic policies
and, if so, how NRFs should be designed
to attain these objectives. Two main
results emerge. First, NRFs should not
be seen as a simple solution to a complex
problem; rather, the question should
be whether they might help improve overall
fiscal policy. Second, it is important
that NRFs be designed carefully to ensure
their effectiveness. Key features of
a well-designed NRF include: coordination
of its operations with those of the rest
of the public sector, effective integration
with the budget, and mechanisms to ensure
full transparency and accountability.
Detailed
contents of IMF Occasional Papers are
available at http://www.imf.org/external/pubind.htm.

This volume, the record of a conference
organized by the IMF Research Department
in May 1999, examines the implications
of greater financial integration on for
the international monetary and financial
system and on how it should be reformed.

Following
an introductory discussion by former
IMF Managing Director Michel Camdessus
about international monetary and financial
stability as a global public good, various
experts consider the most disruptive
manifestations of instability in the
current system, as well as the appropriate
policy responses to them: volatility
and misalignments in the exchange rates
of the dollar, euro, and yen (Benoit
Coeuré and Jean Pisani-Ferry);
instability of capital flows to emerging
market economies (Michael Mussa, Alexander
Swoboda, Jeromin Zettelmeyer, and Olivier
Jeanne); consequences of abrupt capital
flow reversals for balance of payments
adjustment and financing, and for a country's
choice of exchange rate regime (Guillermo
Calvo and Carmen Reinhart); and private
sector involvement in crisis resolution
(Barry Eichengreen). The role of the
IMF in crisis prevention and resolution
is also examined (Takatoshi Ito and David
Lipton). Twenty-four substantive comments
by prominent academics, policymakers,
and other experts are included. Perhaps
not surprisingly, the general conclusion
of the contributors is that segmented
and slower, rather than widespread and
radical, reform is the way to proceed.

Kosovo,
a province of Serbia in the Federal Republic
of Yugoslavia, is under temporary United
Nations administration. Extensive technical
assistance from the IMF has aided the
UN authorities in constructing tax and
budgetary institutions and in setting
up a payments and banking system. This
new book provides a macroeconomic perspective
on some of the problems Kosovo faces
as it tries to rebuild its economy following
the conflict in 1999.

The
authors provide a first estimate of aggregate
income levels (per capita GDP is found
to be lower than in neighboring Albania),
analyze the budget structure, and examine
the conditions for sustainable fiscal
accounts in the medium run. While any
type of prediction is necessarily a speculative
exercise in view of the political uncertainties,
the authors conclude that it will take
several years before public spending
in Kosovo can be fully financed by self-generated
revenues—even given the assumption of
a fast-recovering economy. Any rapid reduction
in donor support to Kosovo would thus
produce quite stringent conditions. Meanwhile,
the interim UN authorities should not
delay in pressing ahead with broadening
the tax system and strengthening the
legal framework for private enterprise.
Reforms such as these will help Kosovo
reestablish a stronger economy sooner.

The second volume of the International
Economic Policy Review, an annual
publication, features a selection of
11 policy papers produced by IMF staff,
highlights some of the research behind
IMF-supported economic programs, and
presents a range of policy choices in
several economic areas.

The
section on economic growth, inflation,
and poverty includes papers that
examine: the reasons for sub-Saharan
Africa's unsatisfactory growth performance,
the continuing problem of rural poverty,
the low-income-country debt crisis, and
the IMF's role in improving governance
and combating corruption, and the real
effects of high inflation. Capital
account liberalization and financial
sector vulnerability—areas of increasing
concern to the IMF—are covered in the
journal's second section, which includes
a discussion of trade policy in financial
services and a case study of capital
flight out of Russia. The final section
is devoted to the exchange rate relations
of advanced transition economies—those
countries that are candidates for membership
in the European Union and which will
soon face a fundamental question: how
best to ensure a smooth transition to
monetary union with the euro zone?

Part I. Economic Growth, Inflation,
and Poverty

Raising Growth and Investment in Sub-Saharan
Africa: What Can be Done?Ernesto Hernández-Catá

The
IMF has appointed Kenneth Rogoff, Professor
of Economics at Harvard University, as
the new director of its Research Department.
Rogoff will simultaneously hold the position
of IMF Economic Counsellor. He succeeds
Michael Mussa, who retires at the end
of June, after a distinguished decade-long
tenure in both positions.

External
Publications of the IMF Staff

A
full listing of external publications
of IMF staff in the first half of 2001
will appear in the next issue of this
bulletin.

IMF
Research BulletinComing
in the September 2001 Issue

Trade and Growth in Africa

Exchange Rate­Based Stabilization

Government Finance Statistics

Country Study: Russia

Editor's
NoteCurrent accounts and fiscal
decentralization are covered in this
issue's research summaries. The first
article describes theoretical and empirical
analysis done at the IMF on current account
dynamics and sustainability—issues
of considerable relevance for both industrial
and developing countries. The second
research summary reviews a debate about
the efficacy of fiscal decentralization
and surveys IMF research on a subject
that is both topical and of considerable
policy relevance.

India is featured in this issue's
Country Study, coinciding with
the publication of a new book which collects
together recent IMF research on this
country. This issue also contains brief
summaries of two recent IMF events—a
conference on exchange rate regimes and
a workshop on macroeconomic policies
and poverty reduction.

This issue introduces a new feature
called Special Topics. The purpose
of these short articles will be to highlight
different types of research output from
the IMF that could also be of use to
outside researchers. Such output includes
datasets, macroeconometric models, and
other analytical tools developed by IMF
staff and made available in the public
domain. The bulletin's first special
topic article contains a description
of the IMF's database on commodity
prices and summarizes recent IMF
research on this topic.—Eswar
Prasad

Journal
Description and Subscription Request

The IMF Research Bulletin (ISSN:
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